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The USD/JPY pair fell for much of the low volume holiday session on Monday, but did manage to bounce just a bit. The lack of volume in America will have us waiting for further confirmation, but the hammer does look promising in a pair that we think should fundamentally be higher to begin with.

The 80 level is without a doubt a major spot in this market, and because of this we are very interested in the action to come. In fact, we think there is a possibility that we will see a major shift at this point, and as a result we are observing this pair at the moment. Quite frankly, we think that a career making trade could possibility happen if a few things fall into place. However, with all things Forex and trading related in general, one should wait for confirmation.

The pair has been a real battle between two central banks lately, or at least the perceived battle between the two. The Bank of Japan has been adding to their asset purchase programs in order to buy Japanese Government Bonds, and other financial instruments in the country. This should have the effect of weakening the Yen overall, but in fact it hasn’t. The main reason is the fact that the Federal Reserve still hasn’t ruled out further easing, and as a result the actions out of Tokyo has been thwarted. With the highly overvalued Yen, the Japanese economy is struggling to sell its exports, something the BoJ desperately wants to avoid.

The perceived chances of further quantitative easing by the Fed will always trump the reality in Japan, as traders know that nobody knows how to kill off a currency like the Federal Reserve. However, this pair will be closely watched at the end of the week as the Non-Farm Payroll report comes out. If the employment situation in America continues to strengthen, this pair will rise as less people will think the Fed is about to ease.

The crucial level for the bulls is the 80.60 level, and if that gets broken – the run could continue for quite some time. In fact, we are buying and holding above that level on a daily close. As for selling, we simply can’t – sooner or later the BoJ will intervene if we fall much further.

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